Galedrige Construction, Inc. - Page 12

          Income Tax Regs.  Section 1.6661-3(a)(2), Income Tax Regs.,                 
          provides in part:                                                           
               The substantial authority standard is less stringent                   
               than a "more likely than not" standard (that is, a                     
               greater than 50-percent likelihood of being upheld in                  
               litigation) but stricter than a reasonable basis                       
               standard (the standard which, in general, will prevent                 
               imposition of the penalty under section 6653(a),                       
               relating to negligence or intentional disregard of                     
               rules and regulations).  Thus, a position with respect                 
               to the tax treatment of an item that is arguable but                   
               fairly unlikely to prevail in court would satisfy a                    
               reasonable basis standard, but not the substantial                     
               authority standard.                                                    
               In determining whether there is substantial authority, only            
          certain sources will be considered authority, including court               
          cases, temporary and final regulations construing the Code and              
          other statutory provisions, and administrative pronouncements               
          (including revenue rulings and procedures).  Sec. 1.6661-3(b)(2),           
          Income Tax Regs.                                                            
               In support of its reporting position in Galedrige I,                   
          petitioner cites as substantial authority Rev. Rul. 86-149, 1986-           
          2 C.B. 67, and Rev. Rul. 59-329, 1959-2 C.B. 138, certain                   
          sections of the Code and the regulations, and several court                 
          cases.  The weight of the authorities cited by petitioner depends           
          on their persuasiveness and relevance as well as their source.              
          See sec. 1.6661-3(b)(3), Income Tax Regs.                                   
               Rev. Rul. 86-149, supra, is not substantial authority for              
          petitioner's position.  Rev. Rul. 86-149 addresses the issue of             
          whether a taxpayer engaged in the business of developing real               

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